Back From Week Long Lecture and Catching Up on Big News Including Rep. Weiner's Package and Fed Bailing Out Foreign Banks

Back from a week long training type lecture thing in preparing for my new internship.  Here is a brief catch-up on the news this week:

Perhaps the biggest news has been Rep. Weiner finally coming out and admitting that he has been sending half naked pictures of himself to various girls and is now considering resigning.  Here is just a sample of the stash of pictures via TMZ:

Like I have said before, I am guilty of sending pics like this of myself to a girl as well.  The only difference between Weiner and I is unlike him, I was 18 and a college freshmen.  Funny how that just happens to be the age bracket of girls Weiner was sending pics too.  So in the end, I really can't blame him, I just feel bad for his wife.

The other big piece of news (well it should be) is a Zerohedge exclusive showing that the Fed has been bailing out foreign banks to the tune of $600 billion:

In summary, instead of doing everything in its power to stimulate reserve, and thus cash, accumulation at domestic (US) banks which would in turn encourage lending to US borrowers, the Fed has been conducting yet another stealthy foreign bank rescue operation, which rerouted $600 billion in capital from potential borrowers to insolvent foreign financial institutions in the past 7 months. QE2 was nothing more (or less) than another European bank rescue operation!

I can't say I am surprised, the Fed has always been beholden to banks both domestic and foreign.  Still, as Mish points out, the Fed wasn't necessarily damaging the domestic economy per say:

Nor does that loan come "at the expense of the domestic economy" as Zero Hedge suggests, except in the general sense that it fueled a liquidity bubble, driving up asset prices and the price of food and gasoline.

In the same post, Mish points out a Bloomberg article which has Nouriel Roubini predicting another economic collapse in 2013:

A “perfect storm” of fiscal woe in the U.S., a slowdown in China, European debt restructuring and stagnation in Japan may converge on the global economy, New York University professor Nouriel Roubini said.
There’s a one-in-three chance the factors will combine to stunt growth from 2013, Roubini, who predicted the global financial crisis, said in a June 11 interview in Singapore. Other possible outcomes are “anemic but okay” global growth or an “optimistic” scenario in which the expansion improves.

Despite his continual calls for more banking regulation and government intervention, Roubini has proven to know what's up when it comes to global economic trends.  Robert Wenzel doesn't call him Mr. Connected for nothing.  You gotta love how Roubini acknowledges Euro debt restructuring despite continued denial from ECB prez Jean-Claude Trichet while he has just signaled that a rate increase may be coming in July:

(Reuters) - The European Central Bank signaled a July interest rate rise and raised the stakes on Thursday in its stand-off with governments over a new bailout for Greece by rejecting any form of debt restructure.
ECB President Jean-Claude Trichet said the bank would exercise "strong vigilance" on inflationary pressures, deploying a phrase that has consistently been used in the past to signal a hike was a month away.

The market is already preparing for Greece's default while Trichet continues to put his fingers in his ears and hopes for the best.  Even Germany Central Bank President Jens Wiedmann has declared that a Greece default wouldn't be that bad:

Bundesbank President Jens Weidmann raised the pressure on governments to agree to a Greek bailout without the European Central Bank taking part in easing the country’s debt burden, saying the euro can withstand a default.

So as for big news, I didn't miss much.  The Fed continues to help out banks across the world, Greece is still on the road to default, and another Congressmen is caught for sexual debauchery.  In not-so-big news, we have Kitco getting charged with tax fraud, rumors of Hilary Clinton running for President of the World Bank, the Chinese rating agency Dagong declaring that the U.S. has "already defaulted," (duh), Sarah Palin e-mails finally being released (who cares?), and China surpassing the U.S. in energy usage.

What should have been considered big news though was this:

Last week saw perhaps the starkest example yet of China's "Great Suppression." Reuters reported that China's central government was taking on responsibility for up to $463bn of bad loans made to Local Government Financing Vehicles (LGFV) which had been made to fund various infrastructure and development projects as a part of the stimulus package. It's not clear yet how this will be done, but I suspect the template will be similar to that used during the recapitalisations of Chinese banks in the 1998-2005 period. Asset management companies buy the bad assets, which they pay for with non-tradable government guaranteed bonds which don't show up in the official measures of government debt. Maybe this is why the story didn't get much attention: China's government throws money at a problem - problem goes away - boring story - move on.

But the problem hasn't gone away. Think carefully about what's just happened. A bail-out of $463bn is half the size of the TARP, introduced by Paulson at the nadir of the 2008 crisis, for an economy which is only one-third the size of the US. So adjusted for GDP, China has just announced an emergency bail out of one and a half TARPs!! If we calibrate the magnitude of the economic crisis with the size of the bail-out, one and a half TARPs implies a financial crisis one and half times the order of magnitude of 2008.

China continues its stimulus and printing press financed growth and yet the financial media neglects this?  As for bloggers, this ruling from the New Jersey Supreme Court is pretty worrisome, via Washington Post:

TRENTON, N.J. — The New Jersey Supreme Court says people posting in online message boards don’t have the same protections for sources as mainstream journalists.
The court ruled Tuesday that New Jersey’s shield law for journalists does not apply to such message boards.

I have yet to look into it, but I wonder how the Court defines journalist.  In more surprising news, we have Michelle Bachamann revealing her deep love for reading Mises on the beach:

Ms. Bachmann is best known for her conservative activism on issues like abortion, but what I want to talk about today is economics. When I ask who she reads on the subject, she responds that she admires the late Milton Friedman as well as Thomas Sowell and Walter Williams. "I'm also an Art Laffer fiend—we're very close," she adds. "And [Ludwig] von Mises. I love von Mises," getting excited and rattling off some of his classics like "Human Action" and "Bureaucracy." "When I go on vacation and I lay on the beach, I bring von Mises."

Wow, never thought I would hear this from Bachamann.  If this is indeed true, where is Bachamann's call to end farm subsidies, the Federal Reserve, foreign intervention, and the massive Department of Defense along with other executive agencies?  Something tells me Bachamann is pandering to the economic crowd in an attempt to steal some of Ron Paul's shine.  If she really believes it, more power to her, but I still have my reservations about her.  Speaking of Ron Paul, here is a pretty good highlight video of him:

Also, here is a good video of Jim Rogers on CNBC signaling that the economy is slowing down and is only going to get worse: